The wealth and income gap in the U.S. has been growing since the 1970s due to various domestic and international factors, including recessions, domestic taxes, discrimination, and educational attainment. We’ve compiled 17 reasons for this growth in inequality.
Disproportionate Income Growth Since the 1980s
According to Pew Research, income growth has been faster for the top 5% of American families than for families in the lower-income strata and shows no sign of reversing. Middle and lower-income families witnessed only marginal growth during the 1980s, marking the beginning of a steady rise in income inequality.
Stagnant Wealth Levels Post-Great Recession
It was only in 2015 that median household incomes approached their pre-Great Recession level of $70,200, which was no higher than in 2000. This 15-year stagnation was unprecedented in the previous five decades.
Outsourcing and its Impact on Domestic Wealth
Former U.S. Trade Representative Robert Lighthizer wrote in Foreign Affairs that “it cannot be denied that the outsourcing of jobs from high- to low-wage places has devastated communities in the American Rust Belt and elsewhere.” The loss of jobs through outsourcing and automation has caused job losses in once-industrial areas in the U.S., decreasing employment opportunities.
Persistent Racial Wealth Gap
Research from the Federal Reserve shows that the average Black and Hispanic households earn around half as much as the average White household, owning only about 15–20% as much net wealth. This racial wealth gap has significantly widened since 1989, along with overall wealth inequality.
Shift in Income Distribution
The top 10% of U.S. earners’ shares of total household income increased from 42% to 50% from 1989–2016, a significant share of the income pie. The bottom 50% saw their share decrease by 2 percent, while the middle 50–90% of earners saw their share drop by 5%. The findings by the Federal Reserve Bank of St. Louis display how income disparity has grown since the 1990s.
Starker Wealth Inequality
Wealth inequality in the U.S. from 1989–2016 grew to the point where the top 10% of families (with at least $1.2 million in net worth) owned 77% of the total wealth; meanwhile, the bottom half of families (with $97,000 or under) only owned 1% by 2016. That’s 63 million families that owned just 1 percent of the total household wealth in America.
Education and Wealth Disparity
There are significant wealth disparities based on educational attainment in the U.S. In the second quarter of 2023, families with at least a four-year college degree had an average wealth of $1,893,000, almost ten times higher than families without high school diplomas. The direct impact of educational disparities was clear, with families with some years of college earning more than those who had only completed high school, with wealth averages of $565,000 and $433,000, respectively.
Widening Productivity-Pay Gap
A report by the Michigan Journal of Economics notes that despite productivity increasing 61.8% from 1979–2021, hourly pay for workers only increased by 17.5%. This increased productivity has yet to translate into higher wages due to several factors, including a stagnant minimum wage and the decline of the union movement. Policy changes are needed to address this contributor to the wealth gap.
Partisan Divisions in Perceptions of Inequality
Democrats and Republicans will likely point to different reasons that cause income inequality. Republicans are far more likely than Democrats to point to personal factors, such as lifestyle choices and how hard people work, as significant contributors to economic inequality. Democrats, on the other hand, are more likely to say structural barriers like ethnic discrimination and lack of opportunity are substantial contributors to inequality.
Black-White Income Gap Persistence
The income gap between Black and White Americans has not significantly changed since 1970. There has been a slight increase in the median ratio income in recent years, with Black household income at 61% of the median White household income in 2018. This is a modest increase compared to 56%, but it is a decrease from 63% in 2007, before the Great Recession. This overall disparity remains a significant societal issue.
Rising CEO Pay and Worker Income Disparity
Research by the Council on Foreign Relations uses the growth in CEO pay to highlight the wealth gap. A typical corporate CEO earned around twenty times what a typical worker would receive in 1965. In 2018, the ratio was 278:1. CEO compensation increased by over 900 percent between 1978 and 2018. Worker compensation had risen by only 11.9 percent.
Failure to Adapt to Globalization and Changing Technologies
Economists say another cause of inequality is America’s poor adaptation to globalization and technological changes, which saw jobs move overseas. Economic policy has not kept pace with the changing economic landscape, while workers have seen a reduction in their bargaining power.
Tax Policy and Economic Inequality
Shifting tax policies have further exacerbated wealth and income gaps. Proposals for progressive taxes to address economic disparity have included raising the minimum wage, taxing wealth alongside income, supporting unionization, and increasing access to college. Critics of a wealth tax proposed by figures including Bernie Sanders and Elizabeth Warren have warned such a tax would be unconstitutional and difficult to implement.
The Gender Pay Gap
The existence of a gender pay gap contributing to inequality is well-established. It has narrowed over the past forty years as more women have obtained education, but it has not changed much since 2000, in part due to discrimination and the underrepresentation of women in high-wage jobs.
The Impact of Economic Crises on Inequality
The recession of 2008 and the slow and uneven recovery from it exacerbated income and wealth disparities. The Great Recession caused incomes to fall, and when they recovered to pre-2007 levels in 2015, median income was the same as in 2000. The recovery was also unequal, with the top 10 percent accumulating more wealth in the period while the bottom 90 percent had less.
Opposition to Wealth Redistribution Policies
President Joe Biden’s pledges to reduce economic inequality by new social spending financed by tax increases for the wealthy and corporations faced opposition. Critics accused the president of going too far, arguing the taxes would harm economic growth.
The Influence of Corporate Tax Cuts
Corporate income tax has steadily decreased as both a share of corporate profits and a percentage of GDP over the past fifty years. The Tax Cuts and Jobs Act of 2017 drastically reduced the corporate rate from 35 percent to 21 percent. These cuts have contributed to wealth inequality, with the top one percent’s share of income increasing after President Ronald Reagan slashed taxes in the 1980s.
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